Everyone is on their own personal journey where money is concerned. Unfortunately, for some, that journey involves a bumpy road with some serious dead ends and cliff edges! It’s all too easy to find yourself with a wide range of debts to juggle. That becomes especially stressful and distressing if your household income drops or you’re facing redundancy. It can leave you struggling to decide which debt payments are essential and which ones you can get away with missing, until you have more cash. It is for this reason that many people are considering a remortgage for debt consolidation. Many people often get stuck in this rut every year, often facing the prospect of having their home repossessed unless they find a way to make ends meet.
Remortgage for Debt Consolidation
Getting behind with debts can make the whole situation even worse. Sometimes the money you owe grows far quicker than you could have imagined. For example, the interest on your credit card debt could swell the overall amount you owe, even when you are working hard to meet the minimum payments each month. For some people, when they feel like they are drowning in a sea of debt or struggling to keep on top of payments, one of the most obvious solutions appears to be to remortgage their home.
If this is what you’re currently considering, then proceed with caution. As this guide will show, this may seem a great way of accessing lower interest rates and gathering all your debt into one monthly payment. However, this course of action also has serious repercussions long term. Not least, because it could end up costing you more than your original debt. Worse still, you could be putting your home at risk.
The advantages of this method of settling debts
As so many people have money worries and debts to juggle these days, a wide range of lenders have chosen to offer options to remortgage for debt consolidation. This basically means that you make your mortgage bigger. You borrow an even larger portion of the value of your home. This remortgage often pays off your existing amount and provides you with extra money to settle all your debts.
Choosing this route to getting from under a pile of debts then leaves you with one monthly amount to find. This can seem like an attractive option, as you have a clear path and one amount to worry about each month, and your debt is spread over a considerable number of years.
Different ways to lend more against your property
If you do decide this is the way to pay off your debts, there are different choices for how to progress. Different mortgage lenders approach this in different ways, and terms and conditions also vary.
This is a general overview of your options:
Remortgage – this is the process of taking out a new mortgage, with either your existing lender or a new one. The amount you borrow would pay off your original loan and could free up some cash to pay off your debts. As a result, you then have less capital (equity) in your house. However, you would then have just one monthly mortgage payment to find, at a new rate.
Second mortgage – another option is to take out another mortgage loan against your property. This can be the best option if your original mortgage deal was at a favourable rate and you don’t want to lose that. The new mortgage would then be at a higher rate, and may also be for a longer or shorter term. It would run parallel with your existing mortgage.
Remortgage for debt consolidation – some lenders have created specific products that help you to pay off your debts. These lenders can appear to be more flexible and sympathetic to customers struggling to manage their monthly outgoings. They group everything together and settle your debts to credit card companies and stores for example, leaving you with one monthly payment to make.
Keep in mind too, that you have the option of taking out a personal loan for debt consolidation. This is another way of clearing credit card debt, store cards and other personal loans. This can be spread over a number of years, to create one manageable monthly payment.
Looking for the right remortgage deal
If a personal loan is not an option that is available or preferable, then you may want to approach your existing lender or find a new one, to increase the size of your mortgage and consolidate your debts that way. The starting point is often with existing lenders. They can talk you through the best ways to manage your mortgage in relation to any other debts you have.
However, it’s vital to shop around and look at each option and product carefully. Remortgaging for debt consolidation is big business, and lenders have been quick to develop a raft of different product offers. Some have a far less favourable mortgage rate than others.
If you are already some years into paying off your original mortgage, you should be especially careful. Basically, you will not get a new interest rate as attractive as your original one. So, you will be paying more interest on your new or additional loan. Also, if you remortgage your home, you may pay charges to your original lender because you have settled the outstanding amount “early”. These vary but can be high.
Be very careful too, that you only borrow from organisations regulated by the Financial Conduct Authority. There are unscrupulous organisations seeking to benefit from people desperate to pay off their debts.
You may particularly want to seek out lenders who are registered in England. The internet provides overseas organisations with a digital shop front, that sell what appear to be attractive lending products. However, they are not necessarily properly authorised and regulated. They may tempt you to borrow more than you can afford to pay back, leading you to losing ownership of your home.
The disadvantages of remortgaging for debt consolidation
As a homeowner, remortgaging your home to pay off all your debts at once can seem like the ideal solution. However, there are several things you need to keep in mind. Firstly, the interest rate charged on remortgages for debt consolidation can be considerably higher than a straightforward mortgage.
Think of it from the lender’s point of view. They must lend money based on an individual’s ability to pay it back. The more you lend, and any track record you have for building debts, will increase the risk. Therefore, they will set your interest rate high, to try to make sure they make some money from the loan.
You could be paying many thousands of pounds more in interest, than you would have faced with your original mortgage. As interest rates fluctuate, your remortgage payments can also rise, unless you find a lending product with a fixed rate. One of the things people sometimes overlook, is that remortgage interest rates hide a rather unpleasant truth. The rate may look favourable, but the cost is high. Let’s look at that in more detail.
It’s easy to measure mortgage interest rates against credit card interest rates on face value. Though credit card debt can mean having to face short term high interest rates, meeting mortgage payments means paying interest on that loan for a longer period. So, for example, though you may get a remortgage interest rate of 4% (compared to say 22% on a credit card debt) you would be paying that 4% off for 20 years. Over that period of time, that is a huge sum of money handed over just to meet borrowing interest.
Dealing with remortgage repayments
Another disadvantage of remortgaging for debt consolidation is that you may have to find a substantially larger amount of money each month to make your mortgage payments, or borrow over a longer period of time. For this reason, having all your debt in one place, and under one umbrella payment, does not necessarily make your outgoings easier to manage.
If you couldn’t meet the sum of your original mixture of debts, then you may find yourself uncomfortable finding the cash each month to meet your remortgage payment. Also, getting agreement from lenders is by no means straightforward. Lending rules have become very strict to stop people from getting themselves in to a downward spiral of debt.
This means that any organisation considering your application to remortgage to consolidate your debts, will look carefully at your ability to meet your new monthly payments. If you have a poor credit score, they are highly unlikely to agree to your application. Have your debt management issues led you into a poor credit rating? If that’s the case, remortgaging your home may not be an option that is available to you. This is unless you choose lenders that don’t have the usual checks and measures in place. That brings big risks.
Also, if you lend an even bigger amount against the value of your property, and property prices in your area fall, you could face something called negative equity. What this means is that you owe more money to your lender than your property is actually worth. So, if you did decide to sell the house, you would have no cash and still face payments to settle the outstanding amount of your remortgage loan.
The alternative to remortgaging for debt consolidation
For many people, having a large sum of money to find each month – and growing mortgage interest over the years – is an unattractive solution. Not least, as saddling yourself with one, large monthly payment, can still leave you fighting to make ends meet. And, if you fall behind with your remortgage payments, you could lose your house.
Instead, they prefer an entirely different and more decisive option to pay off debts using the capital (or equity) in their home. (“Equity” means the part of the value of your property that is your deposit and the mortgage payments you have already made. In other words, it is your cash that’s tied up in your property.)
You may be asking “How can I release the equity in my home, to pay off my debts?” It couldn’t be easier.
The easy way to pay off your debts and move on
You find a reputable and trustworthy cash buyer for your property. Potentially one who will rent the property back to you, so you can continue to live there, debt free. One of the other advantages of choosing this way of getting out from under debt is how quick it is. Applying to remortgage your home could take months, sometimes longer, before the cash is available to settle with your creditors.
Having someone willing to release the equity in your property, and give you cash now, can be achieved in as little as seven days. For this to happen, you must make sure you deal with experienced and qualified members of the UK Property Cash Buyers network. This organisation can help to you find the best cash buyer for your home. A property expert who can provide you with good advice about your property and how it can be used to pay off your debts. You will be able to talk through your options with no obligation, and no costs.
UK Property Cash Buyers Takes Care of it All!
UK PCB’s network don’t charge any fees for this service. Also, you will be under no pressure to accept any offers that you receive, once you decide to progress to the next stage. Rather than going straight down the remortgage for debt consolidation route, consider your options first. With one quick call to UK Property Cash Buyers, you are back in control of your finances. With help and advice from a fair and trustworthy expert, you can take decisive action to pay off your mortgage and all your debts.
This means a fresh start with better financial health and a great deal less stress.